Peso, Canadian Dollar Strengthen; Euro Falls

The Mexican peso and Canadian dollar felt renewed confidence as both currencies gained against the Greenback in response to the televised presidential debate. Both currencies have close trading connections to the US and are linked by the North American Free Trade Agreement.

Understanding The Market Reaction

In an implied Clinton win, such as the general response to the first presidential debate, the market reacts with confidence that US foreign policy, international trade deals and the domestic economy status will be retained. On the other hand, the markets are saying that if there is a Trump victory, the likelihood of foreign trade policy could change dramatically, and that would threaten overseas exports, particularly for Mexico and also for Canada.

The commodity pairs, aussie and kiwi, which are also in strong trade agreements with the United States, also reacted favorably and performed well against the US Dollar.

This is important for Forex traders to be aware of because at this point in the presidential campaign, any bit of rumor can throw the market up or down.

Buy The rumor, Sell The News

The market’s reaction to news or an event does not always mean that the markets guess of the outcome is correct. For example, prior to the Brexit vote, the markets expressed extreme confidence in the unlikeliness of a Brexit and the sterling got notably stronger up until the point that the Brexit results were released. That again reaffirms last week’s commentary to “buy the rumor, sell the news.”

Beware November 8^th

For now, Forex traders can enjoy the volatility of the seasonably active US dollar as it reacts to the news out of the US. As Election Day nears on Tuesday November 8^th, we will be reminding our Forex signal subscribers around the world that it is better to be flat with all Forex trade positions on that day, because anything can happen. We did the same thing prior to the Brexit vote and we exited all trades, and as a result we were not harmed by the unexpected results and consequential drop in the British currency.  This brings us to the time tested statement:

It is better to be out of a trade wishing you were in, then in a trade wishing you were out.